Obama Misconstrues Henry Ford

I was initially delighted to learn that President Obama cited Henry Ford in a speech, because Ford's industrial methods were directly responsible for making the United States the wealthiest and most powerful nation on earth. If Obama is, in fact, channeling Ford, there is hope for the remainder of his term. If, on the other hand, he is not, I am the last person on earth to whom he should try to make this argument.

A hundred years ago, Henry Ford started Ford Motor Company. Model T -- you remember all that? Henry Ford realized he could sell more cars if his workers made enough money to buy the cars. He had started this -- factories and mass production and all that, but then he realized, if my workers aren't getting paid, they won't be able to buy the cars. And then I can't make a profit and reinvest to hire more workers. But if I pay my workers a good wage, they can buy my product, I make more cars. Ultimately, I'll make more money, they've got more money in their pockets -- so it's a win-win for everybody.

The need for a square deal for everybody in a supply chain, including employees, customers, and suppliers as well as investors, is indeed one of the three elements of Henry Ford's universal code for success in any enterprise. The problem is that a stool cannot stand on one of its three legs, and the president overlooked the other two. These three impartial, nonpartisan, and inarguable laws of economics, science, and human behavior are as follows.

(1) Economic law says we cannot get something for nothing. Speculation in mortgage-backed securities, dot-com stocks, and carbon credits is a zero-sum game that produces no value for society. We cannot have material wealth that we do not produce, and the SEIU cannot get $15 an hour for fast food workers simply by demanding it.

(2) Scientific law says, however, that we need not live with a zero-sum situation. We cannot get something from nothing, but we can usually get far more from what we have. The Toyota production system is the most widely recognized way to do this, but it was actually developed at the Ford Motor Company.

(3) Behavioral law requires a square deal for all business stakeholders, including customers, suppliers, employees, and investors. Ford summarized this principle as follows in My Life and Work (1922): "If the public, the employees, and the owners do not find themselves better off because of the undertaking, then there must be something very wrong indeed with the manner in which the undertaking is carried through."

Ford's success secret consisted of the synergistic application of all three laws: economic law, scientific law, and behavioral law. The president's statement overlooks the economic and scientific aspects. Ford could not pay high wages until he, and his employees, made them possible through application of the scientific law. Ford made this clear in My Life and Work.

A day's work means more than merely being "on duty" at the shop for the required number of hours. It means giving an equivalent in service for the wage drawn. And when that equivalent is tampered with either way -- when the man gives more than he receives, or receives more than he gives -- it is not long before serious dislocation will be manifest. Extend that condition throughout the country, and you have a complete upset of business.

It is very easy for somebody to be "on duty," and also to exert himself to the extent that he goes home with sore muscles at the end of the day, without giving an equivalent in service. Bricklaying, a skilled building trade, was an excellent example. The bricks were delivered to the mason on the ground, which meant that he had to lower and raise his entire upper body weight to pick up every five-pound brick. A mason could lay roughly 125 bricks an hour in this manner. Then Frank Gilbreth introduced a non-stooping scaffold that delivered the bricks at waist level, and in such a position that the mason could grasp each one very easily. Bricklayers could now lay 350 an hour. This movie shows the before and after situation, and it is exactly this kind of thinking that drives higher wages and lower costs.

If we assume an eight-hour work day (it was probably longer), the workers could, under the older and inferior system, give 2.86 hours of what Ford called equivalent service. Since no customer is willing to pay bricklayers to do 125 squat exercises per hour, they could receive only 2.86 hours' pay for 8 hours of exertion. Note that I said "exertion," rather than "work." The physical definition of work is force (exertion) multiplied by distance (results). Exertion that covers no distance or, in this case, produces no value, may demonstrate an outstanding work ethic, but it is not work.

The nice thing about industry is, however, that a well-designed job will deliver a lot of work in exchange for very little exertion. Ford made it clear that hard labor was a task for machinery rather than muscle and bone, and he cited another example from agriculture. A farmer who carries buckets of water day after day is certainly exerting himself, but he can do far more actual work -- the kind that earns money -- by installing a pipe to carry the water for him. Carrying buckets was the kind of inefficiency that kept food prices high, and farm wages low.

President Obama then cited Costco, where hourly employees start at $11.50 an hour. Now we are on to something, because Costco and/or its employees have clearly found a way to make these jobs worth more than minimum wage. The higher wages help retain experienced employees, but the most skilled or experienced employee on earth cannot be paid to do non-value-adding work. It turns out that Costco's labor costs per dollar of sales are lower than those of Wal-Mart, and its profits per employee are higher. Sales per square foot of floor space are substantially higher. All this suggests that Costco is applying the scientific aspect of Ford's universal code to remove waste from its activities. This was exactly how Ford achieved high wages, low prices, and high profits simultaneously. This suggests, in turn, that Wal-Mart and other retailers should benchmark Costco to see what it is doing right.

The current minimum wage of $7.25 is not a living wage in the 21st century, and it should indeed be higher. If we take note of the enormous amount of waste that is built into most activities -- practitioners of the Toyota production system are likely to be the only exceptions -- most jobs pay only a fraction of what they should. A few minutes' observation of a fast food restaurant provides an obvious example. Higher wages are not, however, achievable by legislation or ideology. They are achievable only through the diligent application of the laws of manufacturing science, and the acceptance of the inarguable fact that we cannot get something for nothing.

Henry Ford taught us everything we need to know about industrial and labor relations in one sentence: "It ought to be the employer's ambition, as leader, to pay better wages than any similar line of business, and it ought to be the workman's ambition to make this possible." President Obama is correct about the first part. Now he, and his political allies in the SEIU, need to go to work on the second.

William A. Levinson, P.E. is the coauthor of The Expanded and Annotated My Life and Work: Henry Ford's Universal Code for World-Class Success, and author of other books on manufacturing and productivity.

I was initially delighted to learn that President Obama cited Henry Ford in a speech, because Ford's industrial methods were directly responsible for making the United States the wealthiest and most powerful nation on earth. If Obama is, in fact, channeling Ford, there is hope for the remainder of his term. If, on the other hand, he is not, I am the last person on earth to whom he should try to make this argument.

A hundred years ago, Henry Ford started Ford Motor Company. Model T -- you remember all that? Henry Ford realized he could sell more cars if his workers made enough money to buy the cars. He had started this -- factories and mass production and all that, but then he realized, if my workers aren't getting paid, they won't be able to buy the cars. And then I can't make a profit and reinvest to hire more workers. But if I pay my workers a good wage, they can buy my product, I make more cars. Ultimately, I'll make more money, they've got more money in their pockets -- so it's a win-win for everybody.

The need for a square deal for everybody in a supply chain, including employees, customers, and suppliers as well as investors, is indeed one of the three elements of Henry Ford's universal code for success in any enterprise. The problem is that a stool cannot stand on one of its three legs, and the president overlooked the other two. These three impartial, nonpartisan, and inarguable laws of economics, science, and human behavior are as follows.

(1) Economic law says we cannot get something for nothing. Speculation in mortgage-backed securities, dot-com stocks, and carbon credits is a zero-sum game that produces no value for society. We cannot have material wealth that we do not produce, and the SEIU cannot get $15 an hour for fast food workers simply by demanding it.

(2) Scientific law says, however, that we need not live with a zero-sum situation. We cannot get something from nothing, but we can usually get far more from what we have. The Toyota production system is the most widely recognized way to do this, but it was actually developed at the Ford Motor Company.

(3) Behavioral law requires a square deal for all business stakeholders, including customers, suppliers, employees, and investors. Ford summarized this principle as follows in My Life and Work (1922): "If the public, the employees, and the owners do not find themselves better off because of the undertaking, then there must be something very wrong indeed with the manner in which the undertaking is carried through."

Ford's success secret consisted of the synergistic application of all three laws: economic law, scientific law, and behavioral law. The president's statement overlooks the economic and scientific aspects. Ford could not pay high wages until he, and his employees, made them possible through application of the scientific law. Ford made this clear in My Life and Work.

A day's work means more than merely being "on duty" at the shop for the required number of hours. It means giving an equivalent in service for the wage drawn. And when that equivalent is tampered with either way -- when the man gives more than he receives, or receives more than he gives -- it is not long before serious dislocation will be manifest. Extend that condition throughout the country, and you have a complete upset of business.

It is very easy for somebody to be "on duty," and also to exert himself to the extent that he goes home with sore muscles at the end of the day, without giving an equivalent in service. Bricklaying, a skilled building trade, was an excellent example. The bricks were delivered to the mason on the ground, which meant that he had to lower and raise his entire upper body weight to pick up every five-pound brick. A mason could lay roughly 125 bricks an hour in this manner. Then Frank Gilbreth introduced a non-stooping scaffold that delivered the bricks at waist level, and in such a position that the mason could grasp each one very easily. Bricklayers could now lay 350 an hour. This movie shows the before and after situation, and it is exactly this kind of thinking that drives higher wages and lower costs.

If we assume an eight-hour work day (it was probably longer), the workers could, under the older and inferior system, give 2.86 hours of what Ford called equivalent service. Since no customer is willing to pay bricklayers to do 125 squat exercises per hour, they could receive only 2.86 hours' pay for 8 hours of exertion. Note that I said "exertion," rather than "work." The physical definition of work is force (exertion) multiplied by distance (results). Exertion that covers no distance or, in this case, produces no value, may demonstrate an outstanding work ethic, but it is not work.

The nice thing about industry is, however, that a well-designed job will deliver a lot of work in exchange for very little exertion. Ford made it clear that hard labor was a task for machinery rather than muscle and bone, and he cited another example from agriculture. A farmer who carries buckets of water day after day is certainly exerting himself, but he can do far more actual work -- the kind that earns money -- by installing a pipe to carry the water for him. Carrying buckets was the kind of inefficiency that kept food prices high, and farm wages low.

President Obama then cited Costco, where hourly employees start at $11.50 an hour. Now we are on to something, because Costco and/or its employees have clearly found a way to make these jobs worth more than minimum wage. The higher wages help retain experienced employees, but the most skilled or experienced employee on earth cannot be paid to do non-value-adding work. It turns out that Costco's labor costs per dollar of sales are lower than those of Wal-Mart, and its profits per employee are higher. Sales per square foot of floor space are substantially higher. All this suggests that Costco is applying the scientific aspect of Ford's universal code to remove waste from its activities. This was exactly how Ford achieved high wages, low prices, and high profits simultaneously. This suggests, in turn, that Wal-Mart and other retailers should benchmark Costco to see what it is doing right.

The current minimum wage of $7.25 is not a living wage in the 21st century, and it should indeed be higher. If we take note of the enormous amount of waste that is built into most activities -- practitioners of the Toyota production system are likely to be the only exceptions -- most jobs pay only a fraction of what they should. A few minutes' observation of a fast food restaurant provides an obvious example. Higher wages are not, however, achievable by legislation or ideology. They are achievable only through the diligent application of the laws of manufacturing science, and the acceptance of the inarguable fact that we cannot get something for nothing.

Henry Ford taught us everything we need to know about industrial and labor relations in one sentence: "It ought to be the employer's ambition, as leader, to pay better wages than any similar line of business, and it ought to be the workman's ambition to make this possible." President Obama is correct about the first part. Now he, and his political allies in the SEIU, need to go to work on the second.

William A. Levinson, P.E. is the coauthor of The Expanded and Annotated My Life and Work: Henry Ford's Universal Code for World-Class Success, and author of other books on manufacturing and productivity.